- Debt talks take a step backward. President Obama castigated Republicans for proposed tax breaks to the wealthy yesterday, warning them that if a deal to raise the $14.3T debt ceiling is not reached by Aug. 2, and the U.S. finds itself unable to pay its bills, the consequences "will be significant and unpredictable." He also pushed for new construction loans and an extension to the payroll tax break. Republicans say there is no chance a bill to raise the debt ceiling and increase taxes will pass; there has been no progress on a deal since deficit-reduction talks collapsed last week. Meanwhile S&P warned yesterday that a missed payment would result in an immediate D credit rating, while the IMF warned of a "severe shock" to the U.S. economy and world markets.
- One down, one to go. Greece is expected to approve today a second austerity bill covering €28B ($40.5B) of spending cuts, tax hikes and privatizations, after an initial bill was approved yesterday (155 to 138). World markets and the euro rallied overnight as the prospects of a default receded, but the optimism is mixed with concern about the government's ability to implement the unpopular measures. And there's no guarantee the government will find takers for the assets it's selling, let alone the prices it's hoping for.
- Fannie and Freddie healthy compared to banks. 19.7% of mortgages held by U.S. banks are now delinquent, vs. a paltry 6.8% at Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), a government report said yesterday. The figures raised concerns about banks' loan-loss reserves, especially if home prices continue to fall. Meanwhile, other data yesterday provided some hope for the housing market, with pending home sales rising 8.2% in May, almost reversing April's 11.3% drop.
- Visa, Mastercard soar after Fed softens debit-card cap. Visa (V) and MasterCard (MA) surged 15% and 11.3% respectively, and eBay (EBAY) climbed 6.6% after the Fed capped debit-card fees at $0.21 per transaction, almost double the original proposal of $0.12. The Fed will also give banks until Oct. 1 to comply with the new rules, instead of July 21. Disappointed retailers may challenge the ruling in court.
- Lloyds slashes 15K jobs; Street cheers move. Lloyds (LYG) jumped 8.6% in London this morning after it unveiled a program to shed another 15,000 jobs (14% of its workforce), halve its international presence, and focus on four key U.K. units. Lloyds said the plan, which will cost £2.3B, will lead to annual savings of £1.5B by 2014, much of which the bank will invest in its core U.K. segments.
- Boeing and Airbus in dogfight for massive order. Boeing (BA) and Airbus (OTCPK:EADSY) are reportedly in talks with American Airlines (AMR) about a deal to sell up to 280 planes worth over $22B at list prices. Even a partial entry into American's Boeing-only fleet would be a coup for Airbus and a blow to Boeing, which has yet to decide on a successor to the 737. At last week's Paris Air Show, Airbus sealed deals worth $72.2B, including a $17B order from AirAsia (OTC:AIABF).
- ECB signals rate rise. The ECB signalled again it will begin raising interest rates next week from 1.25% after June CPI came in at 2.7%, well above the bank's target of below 2% - ending speculation it might delay a hike in light of the Greek crisis and fears of contagion. In overnight trading, the euro hit a new three-week high against the dollar.
- Eli Lilly to boost R&D even as profit falls. Eli Lilly (LLY) plans to boost R&D spending to 25% of sales in 2011-2014, up from 21% last year, as it looks to maintain its edge in the face of upcoming competition from generic drugs. Ahead of a shareholders meeting today, Lilly reaffirmed expectations that annual net profit will drop to at least $3B from $5.1B in 2010, but said it has 33 treatments in Phases II and III trials. The company's strategy stands in contrast with that of rivals like Pfizer (PFE), which are slashing research budgets.
- U.K. OKs News Corp.'s BSkyB acquisition. The British government signed off today on News Corp.'s (NWS) purchase of British Sky Broadcasting (OTCQX:BSYBY), removing the threat of a prolonged antitrust investigation. As part of the approval, BSkyB will spin off Sky News, although NWS will still own 40% in Sky News and be its main funder. Now NWS and BSkyB have to negotiate the terms of News Corp.'s largest-ever acquisition. A year ago, the company offered £7.8B ($12.5B), or £7/share, for the 61% of BSkyB it didn't already own. However, BSkyB's shares are now trading at around £8.50. Separately, News Corp. agreed to sell struggling Myspace to Specific Media LLC for a rumored $35M, after paying $580M for the music site six years ago.
- Roche's Avastin wins broader EU use after U.S. disappointment. Roche (OTCQX:RHHBY) received EU authorization this morning to broaden the current usage of Avastin in breast-cancer patients, just one day after an FDA advisory panel unanimously voted to revoke approval for the drug's use in the cancer, saying Avastin didn't work as well in follow-up studies and can cause deadly bleeding. The FDA is expected to concur with the panel recommendation, which could shave $1B off Avastin's $6B annual sales.
- QE2 ends today. The Fed ends today its $600B bond-buying program with opinions mixed as to whether it was a success and whether another round of easing is likely to follow. The end of QE2 comes as growth has slowed, inflation has risen and unemployment remains above 9%, and leaves the Fed as the largest holder of Treasurys with around 17% of U.S. marketable debt.
- In Asia, Japan +0.2% to 9816. Hong Kong +1.5% to 22398. China +1.2% to 2762. India +0.8% to 18846.
- In Europe, at midday, London +0.4%. Paris +0.2%. Frankfurt -0.1%.
- Futures at 7:00: Dow +0.1%. S&P +0.2%. Nasdaq +0.1%. Crude -0.2% to $94.59. Gold flat at $1510.60.
Thursday's Economic Calendar
- 8:30 Initial Jobless Claims
8:30 ISM New York Business Index
9:00 Quantitative Easing Conference
9:45 Chicago PMI
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
1:00 PM Fed's Hoenig speaks at the Rotary Club of Des Moines
2:00 PM Hearing: State of the FDIC: Deposit Insurance
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
5:30 PM Geithner: Q&A on Job Creation
- Notable earnings before Thursday's open: STZ
- Notable earnings after Thursday's close: APOL, DRI
The SA Currents team contributed to this post.
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